United Rentals, Inc. (URI) Q1 2016 Earnings Report, Transcript and Summary

Good morning and welcome to the United Rentals First Quarter Investor Conference Call. Please be advised that this call is being recorded. Before we begin, note that the company's press release, comments made on today's call, and responses to your questions contain forward-looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control, and consequently, actual results may differ materially from those projected. A summary of these uncertainties is included in the safe harbor statement contained in the company's earnings release. For a more complete description of these and other possible risks, please refer to the company's Annual Report on Form 10-K for the year ended December 31, 2015, as well as to subsequent filings with the SEC. You can access these filings on the company's website at www.ur.com. Please note that United Rentals has no obligation and makes no commitment to update or publicly release any revisions to forward-looking statements in order to reflect new information or subsequent events, circumstances or changes in expectations. You should also note that company's earnings release, investor presentation and today's call include references to free cash flow, adjusted EPS, EBITDA, and adjusted EBITDA, each of which is a non-GAAP term. Speaking today for United Rentals is Michael Kneeland, Chief Executive Officer; William Plummer, Chief Financial Officer; and Matt Flannery, Chief Operating Officer. I will now turn the call over to Mr. Kneeland. Mr. Kneeland, you may begin. Michael J. Kneeland - President, Chief Executive Officer & Director: Thanks Operator. Welcome and good morning, everyone, and thank you for joining us on today's call. As you saw last night, our first quarter results were shaped by a market that is fundamentally positive while presenting some notable constraints. And we delivered $584 million of adjusted EBITDA on $1.3 billion of revenue, with lower rental rates partially offset by higher volumes. It was a solid performance, particularly in light of the challenges of oil and gas in Canada. In addition, we generated strong free cash flow of $627 million, and we're on track for free cash flow in the range of $900 million to $1 billion this year, in line with our outlook. But behind the scenes, our results showed some encouraging momentum. While utilization was down 10 basis points for the quarter versus the prior year, it was up year-over-year, both February and March, driven by increase in OEC-on-rent. The utilization in March increased by 100 basis points. Taken in total, these numbers reflect a good quarter. The obvious disappointment was rate, and that's a major focus for us. In fact, we believe that we can improve our rate management in this year's operating environment even though there is still some uncertainty out there. I'll start by summarizing what we know, then what we don't know about 2016. We know that the cycle appears to be intact; volumes continue to be strong across a majority of our businesses. Secular penetration is still a tailwind and demand from non-residential construction is on the rise. We also know that our industry added a lot of fleet last year. The new fleet, combined with equipment coming out of Canada in the oil patch has created an oversupply in U.S. markets in the short-term. However, our services are still earning premium pricing. Strategically, this is the right positioning for us in the long-term. Canada was the major constraint. The drag from our Canadian business was significant in the quarter. It accounted for almost a full point of rate decline, and we're managing through it by reducing fleet in weak markets, particularly in Western provinces. So, we're pleased to see that the Canadian Government is taking steps to turn the economy around. And importantly for us, the current plan includes an investment of more than $120 billion in Canadian infrastructure over 10 years, with $11 billion to be allocated immediately. So, let's talk about what we don't know. We don't know when supply and demand will achieve equilibrium, no single rental company controls that timing, but we do believe the market is moving in that direction. Independent data indicates that the growth in supply is now tracking below the growth in demand. Rouse reports that their absorption ratio hit an inflection point in March of last year. The timing makes sense when you think about the decline in oil and gas. Then, the negative ratio hit bottom in November and has been improving ever since. Last month, the ratio was close to parity, and it's the best we've seen in a year. If rental companies continue to show discipline with CapEx in 2016, excess fleet will be absorbed more quickly by the growth in demand. Oil and gas is another question mark, and there's plenty of speculation, but no certainty about the future of this sector. We don't think upstream vertical has hit bottom, yet. And finally, a change in the relative strength of the American dollar would affect the results we report from Canada, and that's a challenge to predict. So, it's been a series of puts and takes. But when you analyze all the various dynamics, it comes down to the size of market growth and the cycle is still very much on track. And in our view, it will be several years before it reaches its peak. It's also the consensus of industry analysts that supports that view, as well as our customers'. Nevertheless, our experience tells us that pricing will be very difficult to predict in the short term. And while rate is just one component of our outlook, it underlies some of our other metrics. Consequently, we made some adjustments to our guidance, as Bill will discuss in a moment. Before I move on, I want to emphasize that our focus continues to be on managing our business for significant long-term value. And as a leader in our industry, we're not willing to be a bystander. We're taking every measure to ensure that we generate the highest possible returns on our capital over time, and that includes managing rates more effectively. We're also being very diligent about taking cost out of the business. Our lean initiative is on track to reach an annual run rate of $100 million in savings by year-end, and we're committed to that target; and we see more room for improvement next year. Now, let's talk about CapEx. In the first quarter, our capital spend was down by two-thirds versus last year, and it gives us major flexibility in managing the balance of our CapEx spend in 2016. Last night, we reaffirmed our $1.2 billion CapEx target for the full year and this is based on the substantial demand that we're seeing in many of our end markets. So, here is a quick snapshot of the quarter. Non-residential construction in U.S. increased year-over-year by more than 11% through February, which is the latest data available. It drove up equipment rentals across a wide range of verticals. We saw year-over-year revenue increases in some of our largest end markets, such as infrastructure, chemicals and refining. And we generated double-digit growth from verticals that are important targets for us. These include pharmaceuticals, entertainment and disaster recovery. Our specialty rental operations are continuing to turn in strong performance. Rental revenues were up 8.7% year-over-year for specialty, with same-store growth being more than 6%. And the combined rental revenues from Trench Safety and Power & HVAC, our two largest specialty businesses, increased by 12% year-over-year, again largely on same-store basis. With our pump business, we're continuing to diversify our market base, both in terms of verticals and geographies. In the first quarter, we opened cold starts for pump in Tennessee and Minnesota. Specialty is an area of our business that we're funding for growth again in 2016. We have a lot of investor interest in these operations. So, I want to take this opportunity to invite you to a branch visit on May 5 in Tampa. We're taking investors to a co-located trench, pump and power branch starting at noon. It's a good opportunity to spend some time in the field with several of our key leaders, including Paul McDonnell, who runs our specialty business. Space is limited, so please give us a call this week if you're interested in attending. So, in summary (9:04) and realistic about 2016. We've looked at this year from every angle and the prospects for equipment rental in North America appear strong, demand is building and our fleet on rent is keeping pace. And our focus continues to be on many aspects of our business that are within our control. These include asset management, our cost structure and cash generation. And you'll see us flex all these areas as conditions warrant, while strategically we'll stay the course in a year to offer significant opportunities to deliver for our shareholders. So with that, I'll hand it over to Bill, who will go over the results with you. So, Bill, over to you. William B. Plummer - Chief Financial Officer & Executive Vice President: Thanks, Mike, and good morning to everyone. As usual, I'll add some color to the numbers that you've already seen or heard from Mike just now. Starting with rental revenue, $1.117 billion of rental revenue in the quarter, that was down 0.07% or $8 million year-over-year and the components are as follows: re-rent and ancillary revenues netted out to an increase year-over-year of $2 million, ancillary was up a little bit more, up $4 million, offset by re-rent coming down slightly. Within owned equipment revenue, the decrease totaled about $10 million, with rate accounting for about $28 million of decline, on that 2.8% year-over-year rate decline that we reported. And that was almost exactly offset by volume being up pretty strongly, $28 million of volume contribution on the 2.7% increase in OEC on rent that we reported. Netting against that is the replacement CapEx inflation for the quarter, that was about $20 million of year-over-year decline, reflecting about 2% impact from the inflation of the CapEx that we replaced. Mix and other was a solid positive contributor this quarter, plus $10 million versus last year. And that very largely reflects the fact that there was an extra day in the reporting period this year. So, net all that together was $10 million of decline in OER as I said, and that totals the $8 million of decline that we saw overall. Within that revenue decline, I'll point out that we did have an impact from the Canadian dollar. It's weaker this year by about $10 million worth of rental impact. So, if you excluded that Canadian dollar currency impact, we actually would have reported an increase in our rental revenue of 0.3%. While I am on Canada, I'd also point it out that that's just the Canadian dollar impact. If you just look at the U.S.-only performance in rental revenue, our U.S.-only rental revenue was actually up 3% in the quarter, that's up 3% when you exclude Canada. Time utilization performance in the quarter actually trended very nicely as you went through each month. The overall quarter, as you saw, was down 10 basis points, but within that, we had a decline in January of about 150 basis points and then February, the utilization flipped to a positive 30 basis points, on its way to the 100 basis point year-over-year improvement that we reported in the earnings release. So, we're on a pretty good positive trend in utilization in the quarter. Moving briefly to used equipment sales, $115 million of proceeds from used this quarter, was essentially flat with last year. The margin of 48.7% was down just over 2 basis points and that's primarily driven by some of the discounting that we've done to move volume in the quarter at a little bit higher pace than we might otherwise have done. When you look at the margin overall, 48.7% adjusted gross margin is still a very high level of margin in absolute terms versus where margins have been historically. Within that used equipment sales result, we sold about 60% of our revenue through the retail channel, consistent with where we were in the first quarter and consistent with what we've been trying to do to focus much of our sales effort through the retail channel. So, a solid used result in the quarter to get us started for the year. On profitability, just real briefly on adjusted EBITDA, $584 million, was down $18 million or 3% versus last year and the margin was 44.6%, that was down 120 basis points. The key components, that rate impact that we called out earlier, cost us about $27 million compared to last year, but that was offset by the volume impact, which was a positive $18 million in the quarter. Fleet inflation was a headwind of about $12 million, so the net effect of all those was really driven by the rate result and inflation. The ancillary revenue impact that I pointed out earlier was a benefit of about $2 million in the quarter. That offsets the used equipment sales result, which was a negative $2 million in the quarter compared to last year. And then we had our normal merit increase impact of about $6 million in the quarter, and the mix in other benefit primarily driven by that extra day was a positive $9 million in the quarter. So, all of that nets to the $18 million year-over-year decline that we called out. Sprinkled throughout that decline was about $3 million worth of headwind from the impact of currency that occurs in various lines here. So, that $3 million was reflecting that $10 million decline in revenues that I talked about from currency. Briefly on adjusted EPS, we delivered $1.40 of EPS in the quarter, and that was $0.06 better than last year. And again, that overcame the impact of Canadian currency, which was about $0.02 headwind compared to last year in the quarter. So, a solid EPS result for us during the quarter as well. On free cash flow, good quarter there, $627 million in the first quarter, that's up $177 million versus last year. The key drivers there, obviously the lower CapEx spend in the quarter was a benefit of about $223 million year-over-year. We also had lower interest expense of about $20 million. And offsetting those two benefits, were really timing of working capital that cost us about $67 million versus last year. And obviously, the adjusted EBITDA result, decline of $18 million. So, those are the key components of that $177 million improvement. I would caution against running too far with the overall results of $627 million in the quarter, as you think about the full year free cash flow. The timing in some of the subsequent quarters will weigh that down. Still we expect to deliver between $900 million and $1 billion worth of free cash flow over the full year. On rental CapEx, you saw the $100 million in the quarter, down to $123 million versus last year and that's consistent with the approach that we've taken to rental CapEx this year, which was to give ourselves as much flexibility as we can early in the year, and then decide, as we go through the year, where it's appropriate to spend. So, we still are expecting to spend $1.2 billion across the entire year for rental CapEx, the quarters will vary this year as we respond to demand. On liquidity, real briefly, we finished the quarter at $1.4 billion of liquidity, just over $1.4 billion, and that reflected about $1.2 billion in ABL capacity and another $200 million in cash on the balance sheet. Let me just touch on the share repurchase program briefly. We purchased in the quarter $153 million worth of shares, that resulted in about 2.7 million shares coming back to us and if you look at the entire current authorization, the $1 billion authorization we're operating under, we spent about $264 million through the end of the quarter against that program. So, we're on the pace that we talked about. As we think about the share repurchase program, our intention right now is to continue the way that we've said. Steady purchases toward about $675 million or so worth of repurchases this year, and they will be fairly steady throughout the months. I've mentioned before, the restricted payments limitations that we have to make sure we operate within from our debt covenants. As we finished the quarter, we had about $566 million worth of available capacity, either from RP baskets in the debt or from cash capacity at the holding company, so we're very well-positioned to continue the share repurchase program without concern about those limitations slowing us down. ROIC for the quarter was 8.7%. That was down 30 basis points from the prior year and clearly reflects the impact of the weaker rate environment after netting out the somewhat stronger demand environment and higher utilization. Let me finish up with just a real brief comment on the updated outlook. You saw the numbers with total revenues coming down to a range of $5.6 billion to $5.8 billion, and adjusted EBITDA coming down to a range of $2.650 billion to $2.750 billion. Essentially we adjusted both ranges down to reflect the renewed outlook on rate. It's impact is about $100 million, and so at mid-point, it was about $100 million. So, that was the motivation for revising those components of the guidance downward. Our new view of rate is now for a decline of 3% to 4% over the course of the year, and really that reflects the experience that we've had early in the year. We can talk about the sequential rate performance that we had in the first three months of the year, but it's fair to say that those came in weaker than we expected and the new rate guidance for the full year essentially reflects that decline. Our utilization is going the other way; we've had a stronger start to the year on utilization and on fleet on rent. And so, we now expect our utilization for the year to be up about 100 basis points. That will bring us centered around 68.3% for the full year. No change to the CapEx plan, as we've mentioned before. $1.2 billion is still the gross spend that we're targeting, which should net down to about $700 million after used sales proceeds. And again, no change to the free cash flow outlook, between $900 million and $1 billion. Final comment is just regards to April. We've got a lot of questions about how April has started, so we figured we'd offer up just a little bit more thought about that. On the rate front, it's fair to say that April has started slightly better than what we saw sequentially in March. We'd call April, so far month-to-date, it's something like a sequential minus five-tenths (21:04). On utilization, it's also slightly better than where we finished out. As of yesterday, our utilization against last year was up 130 basis points. So, we think it's important to understand how the early part of the year plays out. And as we think about the remainder of the year, we're optimistic; optimistic about our ability to put fleet on rent, about our ability to start realizing rate more effectively than we have. And as always, we're going to drive as hard as we can toward all of those objectives. So with that, I'll ask the operator to open the call for questions and answers. Operator?

Certainly. Our first question comes from the line of Steven Fisher from UBS. Your question, please. Michael J. Kneeland - President, Chief Executive Officer & Director: Hey, Steven.

Good morning. Michael J. Kneeland - President, Chief Executive Officer & Director: Good morning.

Bill, I know you said the rate outlook for the rest of the year reflects the beginning of the year trend, but I think you are assuming sequential monthly declines for the balance of the year. So, maybe just give us a little more context for why it makes sense to assume that the rates are going to decline sequentially for the rest of the year as they did last year. Just because – we are seeing oil prices rising and the over fleeting may be moderating, as you're talking about, and the volumes are good. Can you just kind of give us a little more color there? Thanks. William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah. So, I'll start out and please chime in Mike and Matt. The rate range that we give, actually, if we achieve the 3%, you would have some positives in the back half of the year on a reasonable profile of where sequentials would go. So, it's not like we're saying, there's going to be declines every month in the remainder of the year. And in fact, if we repeated last year's sequential performance from May on, that puts us right about the mid-point of the down 3% to 4% range that we gave. And there were some flat months in last year's sequential decline. So, we're not here saying that there are going to be sequential declines every month going forward. We're saying that we want to make sure that we understand how our business looks if you don't get a significant turnaround in the short-term. The reality is we did start weaker than we thought in the first quarter, and things don't turn around instantly. And so, we're trying to allow room for things to take a little bit longer to turn around, but we certainly believe that that's a possibility and that's why we put the range the way we did.

Okay. And how are you thinking about the trade-off between rates versus volume utilization? I mean, to what extent are you making a conscious decision this year in favor of volumes versus rates, and any sense of how you think your market share has trended this year? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Sure, Steve. This is Matt. I would say that the two are connected, but the strategy of trying to drive both rate improvement and time improvement has not changed. Our time utilization doing better than we had originally thought was mostly due to demand and even overcoming some of the headwinds that Mike talked to in his prepared comments in Canada in oil and gas. We have some real strong end markets. I'd say 70% of our regions – and those are the ones that aren't touched by oil and gas and you could think about it geographically as on the coast – have robust demand. And that's what we're taking advantage of. As far as, what's that balance between rate? That's more of a supply dynamic. And we added a slide, on slide five of our investor deck, where you start to see where the absorption of the fleet coming in has been over the past year and where we're starting to see some improvement there. And that informs the stronger end of our range of 3% rate. That's what we're driving towards and we believe the supply side will work its way through because there is such robust demand. Michael J. Kneeland - President, Chief Executive Officer & Director: The other thing I would add to that is – this is Mike, by the way, I would just add that, in my opening comments, we still maintain a premium. So, we're not sacrificing. The market is the market. This is the first year in, what, five years that we haven't had – the industry has had oil as the backdrop, and we understood that. And we also are looking at ways in which we can drive efficiencies in our fleet and our CapEx spend. So, we took CapEx down as well in Q1. So, we wanted to see demand. We're seeing demand, and that's what gives us a lot of comfort for the cycle still playing out.

So, just to be clear, in these markets where you are seeing the volumes that you're not seeing just excessive amounts of competitive pressure? Matthew John Flannery - Chief Operating Officer & Executive Vice President: No, if you think about our rates, Steve, and you separate out the U.S. and Canada, we're not where we wanted to be in the U.S. Our rates in the U.S. are down 2% for the quarter versus the 2.8%, and that's driven by – in the tougher markets where there's not demand, where there's not time utilization in Canada, our rates are down 9.7%. So that's really where the big drag is. If you took oil and gas out of the number, large oil and gas, our rates would have only declined 1.6%. If we had numbers like that holistically, we wouldn't have re-guided rate. We would have overcome that. We would have felt like, with our rate management systems and the robustness of the focus, we wouldn't have had to re-guide. But when you put the whole experience in, we just thought it was appropriate to give that guidance, I just want to reiterate: we're driving towards the better end of that guidance and even beyond. This is not a statement of a lack of focus; it's more a statement of realizing what we experienced in Q1.

All right. Thank you. Michael J. Kneeland - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from the line of George Tong from Piper Jaffray. Your question, please. Michael J. Kneeland - President, Chief Executive Officer & Director: Hey, George. George K. F. Tong - Piper Jaffray & Co. (Broker): Hi. Thanks. Good morning. Can you provide further detail on what's changed in the Canadian and oil and gas markets over the past 90 days that prompted you to lower your revenue and EBITDA guidance? William B. Plummer - Chief Financial Officer & Executive Vice President: So, George, maybe I'll start and ask Matt and Mike to chime in. I think it's just a continuation of what we saw late last year, right. Remember in the fourth quarter we talked about Canada being down significantly. I can't even remember the exact percentage decline in revenue, but those factors that continue, right. We continued to have adjustments in the oil sands projects, and the western part being a major driver there, continue to have pressure on some of the commodity pricing that affects other industries elsewhere within Canada. And that's being exacerbated by all the fleet looking for a home and moving around in that marketplace. So, I don't know Matt or Mike, you guys point anything else specific that might have changed in the last three months. Matthew John Flannery - Chief Operating Officer & Executive Vice President: No. I wouldn't put it just to Canada. As Bill had talked about in his comments, if you carry through what the rate build was planned to be in the year, which had our initial guidance and you carry that through the balance of the year, that's why the revenue guidance dropped. It wasn't just specifically Canada and I think we spoke about that in detail. George K. F. Tong - Piper Jaffray & Co. (Broker): Thanks. I'll jump back in queue. William B. Plummer - Chief Financial Officer & Executive Vice President: Thanks, George. Michael J. Kneeland - President, Chief Executive Officer & Director: Thank you.

Thank you. Your next question comes from the line of Joe O'Dea from Vertical Research. Your question, please. Michael J. Kneeland - President, Chief Executive Officer & Director: Hi, Joe.

Hi, good morning. William B. Plummer - Chief Financial Officer & Executive Vice President: Good morning.

On slide five, when you show supply/demand dynamics and we've seen the improvement over the last couple of months, the rate seems to contemplate that you still have pressure through most of the year when you compare to last year in sequential declines. So, why as we see that supply/demand improving is there not the potential that things accelerate a little bit more quickly, why do you think that even as that improves and you find balance you continue to face rate pressure? Michael J. Kneeland - President, Chief Executive Officer & Director: So, this is Mike. It's the unknown. We know the snapshot of where we are today. We know what we're spending and how we're spending. We've taken down our capital spend significantly. It's what I don't know is going to happen for the rest of the industry, and what they intend to do and spend. So, it is projected, as you stated, according to Rouse that it looks like some time at the end of the second quarter, you could expect some sort of equilibrium. Now, I can't control what the rest of the industry does. I can only speak to United Rentals. But, it gives me – what I've seen it so far and what I hear from OEMs, it gives me confidence that our market – and we're marching in the right direction. That's the unknown. And is there opportunity? Yeah, that's why if I look at the 3% to 4%, there's some opportunity for some positives. But, we have to call it as we see it, and put it up, and kind of de-risk it a little bit. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Yeah. And I would add, Joe, I think, it's just how quickly can we change the momentum, right? And that's probably what we're after. The good news, as Bill pointed out, April, we started to see an improvement in momentum, and how quickly that plays through, we'll see where we get to reaching our goal of 3%.

Okay. And then on the U.S. only, and rate down about 2%, and obviously commodity-related pressure, but outside of that, are there any pockets that you're able to identify, whether it's on the national account front or whether it's the walk-in business, where you're seeing a little bit more of the contribution of downward pressure on rate there. William B. Plummer - Chief Financial Officer & Executive Vice President: I think, we've seen pressure in different category – excuse me – different customer segments. I think that reflects the overall dynamics of what's going on in the marketplace right now, right. It's an excess of fleet, and that fleet is going to look for a home, and whether it finds a home with a large national or a mid-sized regional or a mom – a small walk-in oriented market, I don't think it discriminates. So, we've seen pressure in a variety of different areas. I think, the key for us is to make sure that we support our strategy, right, which is make sure that we're embracing those large national accounts, is the core part of our strategy. And then continuing to offer the services that justify the mid-sized and the smaller players coming to us as well, and to do all that at a price point that reflects the premium service that we offer. So, I don't know again, that Mike, I'll ask if you guys want to add anything, but I'd say, I wouldn't point out any particular group of customers or project types that represent the price, the pressure on rate. But that's another way of saying that we've seen some pressure in a variety of different areas.

Got it. Thanks very much. Michael J. Kneeland - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from the line of Robert Wertheimer from Barclays. Your question, please.

Hi. Good morning, everybody. Michael J. Kneeland - President, Chief Executive Officer & Director: Good morning. William B. Plummer - Chief Financial Officer & Executive Vice President: Good morning.

So, the question is on Canada, and obviously it's tough there, and probably particularly in the west with the oil and such. And I'm wondering if you can speak at all to either the competitive balance or the speed at which you can reduce fleet and normalize. I don't know whether it's more consolidated and therefore you can kind of get things in line faster, just when you anticipate given the plans you have up there, even if the market continuous to be soft that you've taken enough fleet that we can sort of stabilize a bit? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Yeah, Robert, this is Matt. I think, you're hitting on something where the real challenge markets are pretty dense. And when you're thinking about Western Canada and more specifically Alberta, we've been very aggressive in moving fleet out of there. And that's been able to help us right size our business, and we're seeing, it's broad-based in Western Canada. We're seeing our competitors face with the same challenges. It's a macro issue and not a performance issue with our team or a market share issue. It's really just a macro issues in Western Canada. I want to separate out Eastern Canada because I think they might even have some opportunities in some of the provinces in Eastern Canada. It's just not robust enough to call out, but because it's concentrated in certain areas, we are able to move the fleet profitably.

Okay. I'll follow-up again offline. Thank you.

Thank you. Our next question comes from the line of Seth Weber from RBC Capital. Your question, please. Michael J. Kneeland - President, Chief Executive Officer & Director: Hey, Seth.

Hey, good morning, guys. Michael J. Kneeland - President, Chief Executive Officer & Director: Good morning. William B. Plummer - Chief Financial Officer & Executive Vice President: Good morning,

So, sticking in Canada, not surprisingly, I guess what's struck me is – thanks Matt, for the 9. – I think you said down 9.7%, that was good data, and I think, you – in the fourth quarter, it was down 6%. I guess, what I think people are trying to figure out is when do these comps start to anniversary, because it seems like there's been a lag here relative to the inflection in oil last year. So, I think what everybody is trying to calibrate is, when do the Canada comps specifically get easier? And then also maybe can you talk about – is this all just direct energy exposure or you're also seeing indirect knock on type project activity slowdown in those markets as well? William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah. Seth, I'll start. I think, we saw Canada declining really throughout the year last year, but the acceleration really was most pronounced in Q4. And so, in that sense the comps really started to get easier in Q4 although they will be gradually getting easier as we go through the year. Matt, I don't know if you want to answer the question about concentration in oil and gas and – or is it more broad based? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Well, I think, most of us realize, right, so it's a very highly driven by natural resources, the whole country quite frankly, and I think, it was just exacerbated in Western Canada, but it's something that as Bill pointed out was really driven in Q4 and Q1 this year, and during that period, we pulled over $70 million of fleet out of Western Canada. So, we've been very aggressive in dealing with it, and I think, I would leave it at that. I mean, it's – it'd be hard for me to parse out knock on versus the racks, I think, the whole economy, and if you're in Alberta, almost the whole economy is somewhat oil and gas related, and that's where we've seen the biggest drop. Michael J. Kneeland - President, Chief Executive Officer & Director: Yes, Seth. The only thing I would add is if you take a look at one of our investors' deck, the industrial outlook for Canada by province, I think, is a good way of looking at it, and it's not just oil and gas, it is minerals and metals that are all wrapped in there. You know as well as I do Canada is reliant on commodities, natural resources, with the Western taking the biggest part of that, particularly in the oil. And you see that highlighted in our deck by province, reduction outlook on industrial spend that they see in Canada, offset by growth both on the east and the west, far east and far west.

Okay. I mean, just to frame it though for the – I think, 9.7% down in the first quarter, would you expect second quarter to be in that same kind of range or does it that – does that start to get less negative here in the second quarter? Matthew John Flannery - Chief Operating Officer & Executive Vice President: If I – so, we haven't proven to be great forecasting it, to be frank. But I would say that we're expecting our improvements to come in the U.S. and that's where we think the opportunity is, that's where the greater demand is, and where we expect to get our rate of growth.

Right. But I'm just talking about it on a relative basis, I mean, okay. Maybe if I could slide another one. Just on the CapEx, Bill, second quarter last year was, I think, close to $700 million gross CapEx, is that... William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah.

...order of magnitude, should we haircut that by 20%, 25% kind of number, consistent with your full year, or how should – is there any kind of help you can give us for just to calibrate that? William B. Plummer - Chief Financial Officer & Executive Vice President: Yes. Sure. So, the intent is to respond to demand, and that's going to drive the number, so that's why we hesitate to give you a more specific guide. What I would say is we could spend as much as we did last year. If the demand continues to hold, and if we can land the fleet from OEMs. But we could spend materially less than last year, and I know that's not terribly helpful, but it could be – in the area of $600 million, it could be in the area of $700 million, just depending on how the demand plays out as we go through the quarter.

Okay. I'll get back in queue. Thanks, guys. William B. Plummer - Chief Financial Officer & Executive Vice President: Thanks, Seth.

Thank you. Our next question comes from the line of David Raso from Evercore ISI Group. Your question, please. Michael J. Kneeland - President, Chief Executive Officer & Director: Hey, David.

You might have your phone on mute.

I'm sorry. Yeah. Sorry about that. I appreciate you taking the question. I know it's looking out to next year, there's a lot of movement in oil and gas that could change things and so forth, but on your slide 18, just trying to think about the midpoint of your CapEx is basically net CapEx goes up 27%, 28%. And when I think about the way you're laying out the rest of the year, you actually exit the fourth quarter with rental rates down over 3%. But in that slide you're saying you think there'll be modest rate growth. So, I'm just trying to think through, if I'm going to raise CapEx that much in 2017, I'm exiting 2016 with a lot of negative carryover on rate. Obviously, I guess, the answer could be you're just that bullish on 2017. I'm just trying to think through how that makes sense to start the year that negative on rate, you're going to raise net CapEx mid-point by 28%, and we think the full year rate in 2017 is going to be positive. William B. Plummer - Chief Financial Officer & Executive Vice President: Yeah. Hey, David, so, there are a lot of assumptions in there. What I'd say is the – regards the exit rate from 2016 or the carryover into 2017, if you want to use the midpoint of our current rate guidance, right, down 3% to 4%. If we finish the year at the same pace as last year on the sequential, right, that approximately 3.5% set of sequentials, the carryover for 2017 in that scenario would be something like a point negative, right? So, we look at that and we say that's not insurmountable to overcome during the course of 2017 and get back to positive rate throughout the course of next year. So, that's how we think about sort of what we'd have to overcome in order to get to a modest rate increase next year. As for the CapEx, we gave a range, right? We said it could be $1.2 billion to $1.7 billion, I think it was. And we're using that as a statement that we're going to be very focused on preserving flexibility and responding to the market more so than just saying, hey, we're going to spend $1 billion – it was $1.6 billion at the top end of that range. We're going to spend $1.6 billion right here and now in 2017, come hell or high water, right. So, we're going to be responsive. We're going to be very mindful of how rates do behave as we finish up 2016, and that'll inform our thought about what rates are going to look like in 2017 and inform our thoughts about what CapEx plan should be as a result.

Yeah. I was just trying to think through what some of your suppliers may – if you face that decision today, do you err on, I want to get that rate positive and I'll back away from the CapEx growth? I know the CapEx, though, is going more specialty than general rent, but I'm just trying to understand – is the focus still on we want to push rate? And obviously, last night's report made some people question, is it about trying to play a little catch up on some volume growth and market share recapture or – no, it's just the dynamics of this year and next year. Of those two, you would err on: we'll pull the CapEx down to make sure we get the rate. Michael J. Kneeland - President, Chief Executive Officer & Director: Yeah, David, this is Mike. We haven't changed our stripes. We took CapEx down this year. And the easiest thing I could do is just throw CapEx in. To your point, our growth CapEx is going to specialty. As we go through the year, it depends how it plays out, is how I think – how we think about it. We don't know. We're giving ourselves the flexibility, but we haven't changed our strategy or our story as far as how we're thinking about it. This is – we're not going to throw out CapEx for the sake of volume.

I think – thought it was interesting that the rate breakdown that – even if you pull out large oil, and I assume that was large oil out of U.S. and Canada, that the rate was still down 160 bps. Was – is that – I mean, in a way is that almost more the surprise, that the rate degradation in non-oil and gas areas? I mean, it's just a little more – I know there is a hangover in the whole oil and gas contagion, equipment moving to other parts of the country. So, it's interesting that rate even outside of oil and gas is down when the utilization – and correct me if I'm wrong. The utilization's probably stronger outside of oil and gas. I'm just trying to marry that up so I understand the kind of core gen rent business outside of oil and gas. Matthew John Flannery - Chief Operating Officer & Executive Vice President: David, as I had said earlier – it's Matt – it's the supply side. And we saw that mid-year last year, and you saw it in all the Rouse data. There is just more fleets that came in that didn't get absorbed. And if it ended 2015 that way, then we knew there was a first half of the year dynamic, just because of seasonality, where it was going to put more challenge on it. So, I would say that it was less – we didn't have an expectation that rates in the U.S were going to be positive in the low season Q1. And I think Canada has just really, really surprised us even more so. But this is the supply-side dynamic we've been speaking about for the last few quarters.

Well, that's what I'm trying to understand. I mean, obviously we all try to figure out the supply-demand balance. But when you think most iron gets delivered now, all right, April, May, June – I mean, obviously, your CapEx in particular is heavily second quarter. So the idea of forecasting fleet versus demand, I mean, we haven't really seen the real fleeting up this year, right; seasonally, it's still to come. And when you spend time with dealers, it doesn't seem like the rental CapEx is even going down this year versus last year, which would still be fleet growth. So, I'm just trying to understand – it's not your data. Maybe it's not a fair question to you, but... Matthew John Flannery - Chief Operating Officer & Executive Vice President: Right.

I mean, the fleet, to measure it in March and say, hey, we're near balance – I mean, you haven't taken delivery, yet, right? Most of the delivery comes the next three months or four months. I mean, there's still a supply-demand question that naturally isn't really answered until June-July, right? So, I'm just trying to understand how much are we embracing that forecast when we don't really know what's being shipped, yet; but it seems like the dealers aren't really backing off much right now on year-over-year CapEx. I mean, you're doing a good job cutting. I'm just trying to understand, how could I make that forecast off of March fleet when all the fleet comes in the next three months? Michael J. Kneeland - President, Chief Executive Officer & Director: David, we can't – we obviously can't comment on sort of the dealers and what's going on there, but what I would say is, you're right. The fleet tends to come now, but so does the demand. And what we're taking as encouragement is that the relationship between growth in fleet and growth in demand seems to be one that's near or heading toward balance. And you couple that with the pain that the industry has suffered overall regards an excess of fleet, right, low utilizations over the last – well, since oil broke, really. We think that there is a very reasonable case to say that the industry will continue, even though they're bringing in more fleet, bringing in less fleet, than demand might otherwise warrant and that will help with absorption. So, that's the mindset that we're bringing to it, time will tell, whether it's right or not, that's why the uncertainty is, why we're being very flexible and how we approach spending capital this year, right, but based on...

Yeah. I'm sorry. One last thing on the positive side, I'll try to catch up though. On the positive side, I think, Matt, maybe in particular you've answered this, but all of you, there's no more need to move any iron around, would you say? I mean, you've – hopefully, you're past that point. You feel like Canada seemed like these last three months getting some stuff back to the suppliers and so forth on buybacks and stuff. I mean, where Canada – I know, the rate is down, and obviously, Matt, you're weren't willing to say rates are getting much better year-over-year, when you said the U.S. has improvement, but are we at least comfortable with where the iron generally is right now, like are we past that point? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Yeah, we believe so, and I think that's a fair depiction of where we are and we're going to be moving a lot of fleet around as we always do. But I think the big moves of having to move major blocks out of any geography, I think, we've swallowed that pill.

That's good to hear. Okay. Thank you very much. I appreciate it. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Okay. Michael J. Kneeland - President, Chief Executive Officer & Director: Yeah. Thanks, David.

Thank you. Our next question comes from the line of Nick Coppola from Thompson Research Group. Your question, please.

Hi. Good morning. Michael J. Kneeland - President, Chief Executive Officer & Director: Good morning.

I wanted to ask more about the demand in that industrial non-construction segment of the market. And so, looking at the slide deck, you've got a 2.2% forecast in 2016 in the U.S., clearly oil and gas is down, but can you talk more about what you're seeing in manufacturing and petrochemicals, refineries and the like? So, anymore color on trends, and kind of where you're seeing Greenfields there? Matthew John Flannery - Chief Operating Officer & Executive Vice President: I'm sorry, last part of your question, I didn't catch, Nick.

Just trends in the industrial segment of the U.S. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Yeah. I mean, I think that's obviously the one decline or – but really one of the few declining verticals we've, we've talked about ad nauseam, which is specifically upstream oil and gas. We've actually seen some improvement in certain markets in refining. We've seen great improvements in chemical and infrastructure. And, I think additionally, and Mike – I think, it was Mike referred to it in his opening comments, we have some targeted vertical efforts, admittedly in some smaller verticals like entertainment and restorations, where we've been – we've been very encouraged by what we're seeing through those efforts and that's a strategy change that we're going to invest in and continue to implement as an organization. So, I think that – there is a plenty of robust end markets, both vertically and geographically that we feel comfortable with the level of capital being able to be deployed profitability. Michael J. Kneeland - President, Chief Executive Officer & Director: The other thing I would only add to that is, there's still some revamping of some automotive plants that are underway, and will probably play out for the balance of this year and to next year.

Okay, that's helpful. And then can you give us an update on pump solutions, so what performance looked like there? And any kind of update on your ability to cross-sell and put that equipment into sectors other than oil and gas that you talked about? William B. Plummer - Chief Financial Officer & Executive Vice President: Nick, pump is tracking fairly well for us in terms of coming in relative to what we had planned for the full year. In the first quarter rental revenue was basically flat and that's where we had our mindsets coming into the year. We're having pretty good success in looking at verticals outside of oil and gas and driving the cross-sellers we talked about for some time here. So, we're feeling good about pump relative to the forecast that we had for the full year. Michael J. Kneeland - President, Chief Executive Officer & Director: Yeah, this is Mike. I would only add that, in those numbers, upstream oil and gas is down about 70% on a year-over-year basis, with revenues they're relatively flat. So, we've been diversifying our portfolio very nicely and we still see increases in opportunities in the cross-sell.

All right. Thanks for taking my questions. Michael J. Kneeland - President, Chief Executive Officer & Director: Thank you.

Thank you. Our next question comes from the line of Jerry Revich from Goldman Sachs. Your question, please. Michael J. Kneeland - President, Chief Executive Officer & Director: Hey, Jerry. Jerry Revich - Goldman Sachs & Co.: Hi. Good morning, everyone. Michael J. Kneeland - President, Chief Executive Officer & Director: Good morning. William B. Plummer - Chief Financial Officer & Executive Vice President: Good morning. Jerry Revich - Goldman Sachs & Co.: Michael, can you talk about, as we get out within the next, call it, three months to four months based on the performance that you folks are at it (51:51) for utilization mid-April and applying normal seasonality. You'd be pretty close to your utilization high by the third quarter and I'm just wondering what is it that's making you folks a little bit shy about getting more aggressive on pricing as you hopefully get utilization to those levels? Is it a situation where you feel like you're that far ahead of the industry in terms of the utilization difference where you want to see the rest of the industry catch up or has it just been a tough environment, you want to make sure the demand is there before you start to push pricing? Can you just calibrate us on how you're thinking about that? William B. Plummer - Chief Financial Officer & Executive Vice President: Sure, Jerry. I think it's important to recognize that – obviously we don't control pricing in the marketplace. We respond to a significant extent, but at higher levels of utilization, we have more room to select those rental transactions that are most appealing from rate, and it gives people some confidence in being able to quote rates that are a little bit higher. So, that dynamic we expect to play out as the year goes on, and that's why we're encouraged by our ability to improve our rate realization. When it gets to absolute sequential increases, it will depend on things that are outside of our control, including the overall level of industry fleet, and the level of utilization of that fleet in the industry, that's why we spend so much time talking about how industry fleet is being absorbed. You used the word confidence, it's a matter of confidence to say that you are going to start moving sequential rate higher several months down the road. Our experience recently has made us to be mindful of getting too aggressive and far out ahead of where the market actually is. And so that's why we put the rate forecast out there that we did. The key for us is to make sure that our management processes are focused on realizing as much rate as we can in the marketplace. And if we do that and if the industry absorbs more of the fleet that's out there and avoids bringing in a lot of excess fleet to compound the problem from here, then the rate we realize is going to be better than what we got in that guidance range. But it's hard to put that down in black and white in a forecast as we sit right here. Michael J. Kneeland - President, Chief Executive Officer & Director: Yeah. Jerry, the only thing I would add to that is, what lessons learned last year has made us a better company. We have a lot more rigor and control around our fleet and our capital. And we've made significant improvements in our process. That gives me comfort, number one. If you were to ask me, okay, hey, Mike what were you thinking when you gave us guidance in January, given the numbers that we posted there. I would tell you that we go through and the team goes through a rigorous process to figure out what has to occur, what has to be true on rates and utilizations. And as Bill mentioned, they're moving targets in one direction or one aspect to the other. So, in January, our plan called for being down 0.3%, we actually finished 0.4%. So, tenth of a point, not bad, but it really was in February and February is always a swing month for us and then it was really – it leans on March. And then, as March played out, that's when we – as we've talked about that the whole got bigger, but the demand was picking up and we started seeing that demand and you see that in the numbers that we've talked about. So, it's a balancing act, we think, we can improve on that, that's our goal, that's our job and we'll continue to focus on it as we go through the year and report out to the best of our ability how we see the world playing out. Jerry Revich - Goldman Sachs & Co.: I appreciate the color. And historically, RSC, before you acquired the business had a high proportion of its contracts expiring at around calendar yearend. Has that changed at all and what are the implications for rate next year if those contracts re-price at lower rates exiting 2016 than where we were exiting 2015? Matthew John Flannery - Chief Operating Officer & Executive Vice President: Sure. Jerry, it's Matt. So, most national account contracts get negotiated somewhere around yearend, either a month or so before or a month or so after, it depends on the length of negotiation. We're not seeing – so, we've renegotiated just about all of our national account agreements for this year already and we're not seeing really any significant different performance than the overall markets that they work in. So, the Canadian national accounts are maybe faring a little bit better than the overall market, but in the U.S., our national accounts are behaving like the rest of our business. And, usually that's the way it's been throughout the last few years, both pre and post acquisition. So we don't foresee any difference. Jerry Revich - Goldman Sachs & Co.: I appreciate it. Thanks everyone. Michael J. Kneeland - President, Chief Executive Officer & Director: Thanks, Jerry. Matthew John Flannery - Chief Operating Officer & Executive Vice President: Thank you.

Thank you. And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to management for any further remarks. Michael J. Kneeland - President, Chief Executive Officer & Director: Thanks operator. But before we end this call, I want to mention that Ted Grace has joined our team as Head of Investor Relations. I think many of you know Ted from his work as the analyst covering the industrial and construction sectors. Ted and Fred will be working closely together in the coming months. So please feel to reach out to them in Stamford anytime. And then going back to my opening comments, we have this specialty tour that's set up from May 5. We hope to see many of you there. And please reach out to Fred as soon as possible. But I look forward to showcasing the capabilities of our specialty branches that we are very proud of. So thank you for joining us and hope to see you in Tampa. Thanks. Bye.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.